John Carter of Aldermore argues why builders need to embrace modern methods of construction as a way to help the industry recover from the pandemic.
The impacts of the Covid-19 pandemic have demonstrated the importance of the need for businesses to be flexible in order to deal with economic challenges. Many have shown incredible resilience and innovation, building good foundations to make the best of the opportunities that lie ahead as the economy begins to open up again.
One of the sectors beginning to thrive again is construction; since summer of 2020, most development sites have been open, albeit with reduced capacity due to supply chain issues and social distancing. There have also been some delays where teams may have had to self-isolate.
ONS figures March 2021 showed a 5.8 per cent increase in construction activity, and data from Glenigan shows that the development pipeline is now ahead of 2019 levels, pointing to the prospect of a sustained recovery.
With a strong demand for development funding, has come a rapid rise in demand for construction products, which is continuing to impact some supply chainsfor certain materials. The Builders Merchants Federation (BMF) reported surging sales of building materials in the first quarter of 2021, reaching record levels in March. Sales in March were up 47.4 per cent compared to last year, and sales were up 23 per cent compared to March 2019. This increase in demand for building materials, coupled with Brexit issues affecting deliveries from the EU and suppliers struggling to keep up with the sudden surge in demand for certain products, has led to a shortage of certain materials and rising prices in the short term.
However, with confidence growing and the construction sector starting to up its performance, businesses are now beginning to look beyond the pandemic at the steps they can take to capitalise. Many businesses are now focused on investing in the future of their business, with recent research revealing that the top three planned investments by construction SMEs include new equipment (26 per cent), online presence (20 per cent) and new technology (17 per cent). Beyond Covid-19, as priorities slowly begin to shift to business as usual, a fifth (17 per cent) of businesses are also looking to expand their customer bases and enhance their sustainability practices.
One area that is increasingly discussed as part of innovation and also sustainability is around Modern Methods of Construction (MMC). It’s encouraging to see that specific businesses – and the industry more widely – are embracing such technology, investing in the training and skills required and acknowledging that a transformation in practices will enable the sector to “build back better, greener and faster.” There’s growing recognition that MMC has an important role to play to help the UK build more houses. The House of Commons’ Housing, Communities and Local Government Select Committee’s report from June 2019 on MMC, for example, noted that the Government’s target of building 300,000 new houses a year by the mid-2020s cannot be met using traditional methods alone; citing issues such as a shortage of skilled workers and availability of traditional materials.
MMC could play an extremely important role in the future of construction, and its use is only likely to increase. It brings a myriad of benefits, such as higher quality, and safer working practices. However, its true potential arguably lies in its role in accelerating the development and adoption of low-carbon design and new technologies which will bring forward transformational and sustainable change in the sector. This will contribute towards the climate change target of cutting emissions by 78 per cent by 2035 (bringing the UK more than three-quarters of the way to the 2050 net zero target).
BUILD OFFSITE PROPERTY ASSURANCE SCHEME (BOPAS)
Despite the potential that MMC can bring for businesses, for some lenders MMC is still unfamiliar and they take a more conservative approach to adopting such methods, which is limiting its growth.
For lenders, recognising the expanding role of MMC and investing in such projects are two very different concepts. One of the stigmas attached to MMC is that if a project takes less time to build, it must be of a poorer quality, compared to traditional methods. Such stereotypes are now out of date, with 21st century technology delivering better quality, safer, and far more cost-effective homes at the same or, with upscaling, lower cost.
To help diminish the MMC stereotype and verify the quality of MMC projects, the Buildoffsite Property Assurance Scheme (BOPAS) was established. BOPAS is a risk-based evaluation scheme which demonstrates that a particular method of construction will stand the test of time – for at least 60 years. For funders and lenders, BOPAS accreditation provides confidence that a MMC project is fit for purpose and removes the uncertainty of the construction for valuation purposes.
Although BOPAS is recognised by the majority of mortgage lenders as providing the necessary assurance regarding the system or design, the scheme does not cover the ongoing construction checks needed nor does it provide the necessary link between the manufacturer and the construction team. It, therefore, needs to be used in conjunction with a warranty provider such as Building LifePlans (BLP) or the National House Building Council (NHBC) that can give assurance with regard to the construction and ongoing maintenance of the property.
BOPAS accreditation could encourage more lenders and developers to invest in and build more MMC projects and thereby, become more sustainable. Sustainable developments that meet the needs of the present without compromising the ability of future generations to meet their own needs are challenging in a sector which, by its nature, is a big user of natural resources.
MMC will no doubt become much more prominent in the future as companies invest in the technology and skills needed, and this will lead to increasingly innovative practices in construction.
Rather than replacing traditional construction, MMC is more likely to be increasingly integrated into it as part of the mix of producing an end product. However, it offers exciting opportunities to deliver homes in a high quality, carbon efficient way, and in less than half the time of traditional construction.
Lenders must embrace changes in construction, and work closely with construction firms, housebuilders, investors and property developers to provide funding solutions to deliver the homes this country needs.
John Carter is managing director of commercial real estate at Aldermore